For small operators, accounting software for oil and gas is an important decision.
For example, a small independent operator typically starts with the following setup: An email account, multiple spreadsheets, and a standard off-the-shelf copy of QuickBooks.
This configuration works reasonably well for operators of five well facilities and 100% working interests.
However, that small operator may then take on a partner.
With a partner in place, the once simple back office structure becomes a nightmare of data entry by hand, hundreds of spreadsheets, and numerous math mistakes.
General-purpose financial tools cannot provide the level of support necessary for the day-to-day activities of the oil patch.
As a result, the requirement to calculate intricate cost splits down to the fifth decimal on a monthly basis can turn a standard ledger into an enigma.
Small operators can find it challenging to find an appropriate oil and gas accounting software for their operations without being distracted by the marketing buzzwords and focusing instead on the mechanical functions that determine the bottom line.
The bottom line on accounting for small operators
According to the most up-to-date research and analysis performed on the current landscape of accounting software, there are several sobering realities faced by small operators managing fewer than 200 wells.
- The "QuickBooks Wall" Exists: Most standard accounting software cannot handle JIBs or automate revenue distributions cleanly. These types of accounting programs can only be used by single owners who operate solo and within the same state.
When you implement a production accounting software, make sure your accounting software is at the end of the series.
This means you get the data from the field before you purchase the accounting suite. If the data from the field is bad, your best ledger is useless.
One of the primary drivers for software selection is familiarity with your CPA.
Many times, the software that works best for your needs is going to be the one that your external CPA or production accountant knows very well.
Generic accounting tools fail in upstream oil and gas
Generic Financial Software typically provides a linear approach to tracking expenses and revenues.
Upstream Oil and Gas Accounting requires a multi-dimensional asset-centric architecture, where every invoice, utility bill and revenue check maps back to a specific well, lease and ownership structure.
Where QuickBooks breaks down
The Standard Business Ledger is an excellent tool for basic Accounts Payable and Accounts Receivable functions.
However, they simply don't have the data architecture required to track multiple levels of Working Interests, Royalty Owners and Overriding Royalty Interests at the same time.
When an Operator attempts to run an Upstream Oil and Gas Business using a Generic Ledger, they often find themselves creating a large number of Auxiliary Spreadsheets which are used to calculate Ownership Percentages.
The manual transfer of data between these Spreadsheets and the General Ledger creates a tremendous risk of Human Error.
One incorrect formula in a single cell can create thousands of dollars in overpaid royalties or underbilled Joint Interest expense.
Joint interest billing is the core of upstream oil and gas partnership accounting
When a well goes down for repair - for example, a pump - the partner's costs for that repair must be divided up equally among the partners.
If the total cost is $10,000 to repair the well, the partner's share will be based upon their percentage of ownership in that well.
Depending on the type of partnership, the partners may have different ownership percentages in that well or lease.
The owners are able to track these percentages using specialized oilfield software that maintains "Billing Decks" that represent the ownership percentages of the partners when submitting invoices to the accounts payable department.
The specialized oilfield software is able to take all purchased invoices for a specific well and accurately compute what billings go to each partner, based upon their billing deck, and automatically produce Professional Joint Interest Billing Statements for each partner.
The General Ledger Systems at this time require an operator to perform manual calculations on every invoice line item, and as a well becomes more active, this calculations workflow becomes unsustainable.
Separating gross revenue into exact components
The operator does not keep the check money received from the crude oil purchaser or natural gas pipeline company.
The operator does not keep any of the gross revenue from the check received from the crude oil purchaser or natural gas pipeline company.
The check represents "Gross Revenue," and is allocated into the following components:
- Severance Taxes - These are production taxes required by the state and must be deducted prior to any net distribution.
- Royalty Interests - These represent the mineral owner and are paid a "clean" piece of revenue. They do not share in any of the costs associated with the operation of the well.
- Overriding Royalty Interests - These represent geologists, landmen, or investors and usually take a percentage of the gross revenue.
- Working Interests - These are the Operating and Investment Partners who have the operating agreement and are responsible for paying all of the costs of operating the well. They receive the remaining distribution of revenue that is left after all other costs are deducted.
A Specialized Oil and Gas Engine automates this entire workflow.
It imports the CDEX files provided by the purchaser and applies the appropriate state tax rates, deducts the allowable post-production costs, and generates check statements for every stakeholder that detail the gross volumes, prices, values, taxes, and net adjustments to each stakeholder.
Manually performing the tasks for numerous royalty owners in various states would create a situation ripe for regulatory scrutiny and hahah
Setting up the production first strategy for new companies as an operator
One common error for new independent operators is purchasing a best-in-class accounting systems before developing a method for capturing data in the field.
This is an improper prioritization of operational workflow.
Why physical volume data is more important than accounting data
The important aspect of accounting is that it is a lagging indicator of actual performance.
Data used for this purpose is dependent upon an accurate physical measure of barrels being produced, thousands of cubic feet of natural resources used, and the quantity of produced, additional barrells, etc.
Therefore, If crew members in the field are texting or writing down what they think the level of the tank was, then the data being provided to the office by the crew member is faulty.
The reason why M-E-A's accounting process can be delayed at month¡s end is not because the bookkeeper is unable to balance the books, but rather they are awaiting corrected run tickets and or missing gas allocation slips being submitted from the field personnel.
Establishing field data collection systems should always be encouraged because it will give the accountants the most accurate numbers from day one.
Establishing a clear boundry in operations
Field production software should be operated in real time/day cycles at least one (1) at the lease level, while the accounting software is on a monthly cycle back at the accounting department (office).
[ Field Production Data ] ---> (Daily Volumetric Balances) | v [ Monthly Purchaser Checks ] -> [ Oil & Gas Accounting System ] -> ( J.I.B. / Revenue Distribution ) This creates a clear boundary line for the small business operator.
The production system provides a reliable source of truth for both volumes and operational issues.
The production system also serves as the backbone of an accounting tool that converts the validated volume into accurate dollar distribution, produces financial statements, and generates compliance reports.
Top oil and gas accounting software
The landscape for accounting software targeted at the upstream sector of small businesses is primarily composed of a few niche providers who each provide a different user experience.
PakEnergy (Sorry WolfePak)
PakEnergy is known as the industry leader after moving its users out of the start-up stage.
The company has developed a large array of modules that integrate into a very scalable software platform since their rebranding from WolfePak.
- Type of User: Operators running between 20 and 500 active wells and with active investors.
- Strengths: A very strong Joint Interest Billing (JIB) engine with a comprehensive array of revenue distribution capabilities and compliance tools covering states such as Texas, Oklahoma, and New Mexico. It is the most widely used system among field experienced certified public accountants (CPAs).
- Limitations: The user interface is a legacy design and can be viewed as outdated and carries a greater degree of complexity for users who may not have a background in oil field accounting.
- Expected Price Range: The average monthly fees can range from approximately $400 to over $1,200 depending on the number of user seats, the number of active wells, and the modules selected (for example land, production, and JIB).
OGsys
OGsys has a long history over several decades providing specialized accounting logic for the upstream oil and gas industry.
Their OGsys SQL and OGpro products bring a modern look and feel to the user experience while still maintaining the depth of accounting.
- Ideal User: Small to medium-sized operators that need a fast cloud interface and have dedicated back-office accounting employees making it easy to manage all aspects of the business.
- Core Strengths: Provides an excellent user experience through robust multi-window capabilities, seamless integration with third-party production and land management platforms, and eliminates the need for local servers with its cloud-based system.
- Weaknesses: Can be too costly for very small businesses (micro-operators), making it difficult to use with fewer than 15 wells.
- Pricing Estimate: Foundation cloud pricing starts at around $500 to $800 per month based on tier with additional tiers as asset complexity and number of wells increase.
Roughneck Accounting
Roughneck has been developed specifically for the smallest independent operators.
Their accounting software focuses on the necessary functions for these operations without the complexity of enterprise software.
- Ideal User: Micro-operators operating one to thirty (1-30) wells looking for a low-cost and easy way to manage joint interest billing (JIB) and basic revenue checks.
- Core Strengths: High usability, low cost and designed specifically for a small operation that does not need institutional level reports.
- Weaknesses: Not designed for scalability beyond micro-operators. For example, if an operator has plans to grow very quickly into hundreds of wells or plans to seek institutional private equity support, they will outgrow Roughneck quickly.
- Pricing Estimate: The Roughneck accounting product has earned its reputation as one of the most cost-effective products on the market with starting prices typically under $200 to $300 per month for entry-level packages.
Bolo
Bolo is an enterprise-grade product that can make the functionalities available to the rapidly expanding independent operators with expectations of quick and significant business expansion through acquisition or other means.
- Target Market(s): Privately funded small companies and small operators with ample capital to quickly surpass 200 wells.
- Key Features: Internet delivery, modern analytic capabilities and unique tracking metrics via Authorization for Expenditures (AFE) tracking to manage intricate processes within Capital expenditure management.
- Key Challenges: Extensive engineering design may not be appropriate for a small operator with steady-state operations. Implementation costs may prove cost prohibitive.
- Price Estimate: High-end Custom Corporate Pricing. Higher level of small business operational budgets available.
COGNOS
COGNOS, unlike generic enterprise business intelligence software products, is designed specifically to serve independent oil and gas producers with robust, functional back-office software.
- Target Market(s): Multi-state small operators that must maintain strict general ledger controls and utilize "traditional" operational workflows.
- Key Features: Extremely dependable database structure; proven long-term operational stability; robust generation of lease operating statements.
- Key Challenges: No available API-driven connection features compared to newer cloud-based competition.
- Price Estimate: Medium priced based on deployment configuration and type (hosted vs. on-premise).
Hidden software purchase fees & estimated implementation schedule
Determining the true monthly cost of a software product only by looking at the monthly subscription fee can lead to a negative budget impact.
Upstream software implementations can take much longer and be far more complex than anticipated.
Realistic pricing levels/types for software packages
Since vendors providing software packages to the oil and gas industry rarely if ever display flat-rate prices on their websites, and your actual cost will vary dramatically based on your company's structure of operations, we've provided an estimated baseline for the types of software packages available for smaller oil and gas operators.
Vendor | Acceptable Well Count | Deployment Option | Cost Basis |
Roughneck Accounting | 1-30 wells | Desktop/Hosted | # of base modules |
PakEnergy | 20-500+ wells | Cloud/Desktop | # of wells & active modules |
OGsys | 15-500 wells | Cloud-Native (OGpro) | User seats & transaction volume |
COGNOS | 10-200 wells | On-Premise/Hosted | Concurrently connected users |
Implementation road map
You cannot purchase an oil and gas Accounting System (software) on Tuesday and complete JIB cycles on Friday as the data migration process takes significant time.
Your implementation timeline is generally 30-90 days for a small operator (20-50 wells).
For large operators (100-200 wells) your implementation timeline could last 3-6 months.
The time taken is not actually for the installation of the software but instead pertains to the extended period for extensive cleaning of the data.
Your staff needs to verify all historical lease agreements have been audited for exact decimals on working/royalty interests; verify all current state tax rates; and upload a complete set of cleaned historical balances into the new accounting software.
If inaccurate data is migrated from an Excel spreadsheet into a specialized accounting ledger, automatic errors will be generated much faster.
The CPA experience factor
Prior to signing a multi-year lease for your software, consult your CPA or production accountant to confirm the systems that they operate in conjunction with the company.
Your CPA will have to manually export the raw data tables to perform standard tax optimization and file IRS tax returns if you choose an obscure accounting platform.
The hours spent on manual conversions can add dozens of billable hours to your annual CPA invoice.
However, if you choose a more advanced platform, such as PakEnergy or OGsys, you can frequently provide your CPA with a read-only login so they can quickly access clean Lease Operating Statements and 1099-MISC and 1099-NEC in seconds.
Real world operational scenarios
There are several different types of production constraints, geographic considerations, and regulatory requirements that each and every independent oil and gas operator will experience at some point.
Understanding how a given software package handles these types of small business situations can help guide your selection process.
Scenario 1: A solo operator adding a partner
Consider an independent operator that currently operates 20 shallow oil wells in Oklahoma with one owner.
This operator has been using QuickBooks historically to track everything.
This operator decided to drill two new horizontal wells and add a non-operating working interest partner to help share the capital risk.
The instant the new partner signed the Joint Operating Agreement (JOA), the accounting requirements for the operator doubled.
After signing the Joint Operating Agreement (JOA) the operator must now track the partner's shares of costs for drilling operations on Authorization for Expenditures (AFE), bill the partner for their share of drilling expenses, and send the partner monthly Joint Interest Billing (JIB) Statements for routine lease operating expenses.
If this operator attempts to stay using QuickBooks, they will have to devote many days to manually calculating the partners' shares of every invoice related to chemicals, electricity, and vacuum trucks they use.
Choosing a system that best fits your needs is key to running an efficient Oil & Gas operation.
Scenario 2: Multi-state production & trouble with taxes
An example of an operator that may benefit would be a small operator in West Texas with 45 wells and another 10 on the New Mexico side of the State line.
The operator has three working interest partners and 15 royalty owners.
For West Texas production, operators are responsible for sending in a crude oil production tax of 4.6% and a natural gas severance tax of 7.5%, as well as other regulatory assessments.
On the other hand, New Mexico has several different taxes based upon how the operator produces oil and gas.
For example, an oil well may pay an Oil/Gas Conservation Tax; School Emergency Tax; Severance Tax; and, since New Mexico has many different monthly filing requirements for low producing stripper well exemptions, these all have their own deadlines with respect to filing and exemption dates.
For operators that operate using a general ledger, they must manually split the purchaser checks by state and compute a unique deduction for each well each time they submit their check for payment.
As an example, specialized software like OGsys or PakEnergy records the tax rules for both Texas and New Mexico and automatically applies them when the operator enters the monthly check stub so that the operator is provided a compliant Electonic Upload file for both the New Mexico Taxation Department and for the Texas Comptroller’s Office.
Conclusion: Which is the best accounting system?
There is no way to say that one particular Oil and Gas Accounting System is superior to any other for being used by a Small Business Owner.
Which oil and gas accounting platform you select will depend on the asset count, growth path, and size of back-office support.
For the micro-operators with less than 15 wells, a consistent asset footprint and no plans to aggressively acquire businesses, Roughneck provides you with all the tools needed to complete your business objectives while remaining within budget and administrative capacity.
If you are operating a standard independent company that has between 20 and 150 wells, operates with multiple investors, or is operating across several states, the choice of accounting software typically gets narrowed down to either PakEnergy or OGsys.
Use PakEnergy in the event that your external CPA requires detailed reporting on established-legacy industry standards.
Use OGsys if your internal team is looking for a fast and agile operation utilizing a digital-cloud workflow that integrates directly with new production tools in the field.
Regardless of which software you choose, it is critical to stabilize your daily capture of field data prior to moving to the new software.
Accurate accounting starts at the wellhead.
Frequently asked questions
Can you run 20 wells using QuickBooks and Excel?
Yes, you can run 20 wells using QuickBooks and Excel but doing so puts a significant financial risk on the operator.
Although QuickBooks can provide a general ledger to track the overall financial performance of the business (total revenues and expenses), it does not have the capabilities to track Joint Interest Billings (JIB) or automatically distribute revenues among partners' interests.
The operator must prepare ownership operating splits, perform calculations for multi-state severance taxes, and bill partners for revenue through Excel.
As the operator's well count increases or additional partners are added, manual tracking of financial performance becomes increasingly labor-intensive and error-prone, ultimately consuming excessive administrative time.
How long does it take to implement an accounting software for oil and gas?
In general, small independent operators that manage between 20 and 100 wells should expect to complete the implementation process in about 30 to 90 days.
The majority of the time is used to conduct audits of previous leases, extract overlays for the accurate ownership deck percentages, validate historical data balances, and set up the chart of accounts to accommodate complex mapping of asset levels.
Why are production software requirements prior to transitioning to an accounting software?
The primary reason to utilize production software is that accounting software registers financial values based on physical volumes.
If a company has poor field data capture methods such as delayed run tickets, unverified tank gauge readings or incorrect allocation math, the information that ultimately feeds the accounting software will be flawed.
Therefore, if the company has already established a priority for the implementation of field production software, then the company will begin to work with accurate and validated volumes from the very first day of operation.
What are the implications of a multi-state operation for an oilfield accounting software selection?
Regulations differ among oil-producing states for various reasons, including but not limited to severance tax filing deadlines, state-specific incentive exemptions for stripper wells, and differences in electronic filing/reporting formats.
If you were to select an upstream specialized accounting software package with pre-configured regulatory modules that pertain to the states in which you operate, you would eliminate the need for the operator to perform manual compliance calculations and therefore prevent unnecessary financial penalties due to incorrect filing.
